• AUD/JPY drifts lower to near 114.50 in Monday’s early European session. 
• The positive outlook of the cross remains intact above the 100-day SMA, with bullish RSI momentum. 
• The first downside target is seen at 113.66; The immediate resistance level emerges at 114.96.

The AUD/JPY cross trades in negative territory around 114.50 during the early European session on Monday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) as Japan’s annual core Consumer Price Index (CPI) inflation in Tokyo rose for a third consecutive month in August, reinforcing expectations that the Bank of Japan (BOJ) could raise interest rates as early as September.

Hotter inflation data came after BoJ Deputy Governor Ryozo Himino delivered hawkish remarks and highlighted growing inflation risks. Most market participants currently expect the Japanese central bank to raise its policy rate to 1.25% at its upcoming policy meeting. 

On the other hand, upbeat China’s Manufacturing Purchasing Managers’ Index (PMI) data could provide some support to the China-proxy Aussie as China is a major trading partner to Australia. 

Data released by the National Bureau of Statistics (NBS) on Monday showed that China’s Manufacturing PMI climbed to 49.8 in August from 49.2 in July. This figure came in stronger than the 49.7 expected. The NBS Non-Manufacturing PMI steadied at 49.0 in August, compared to July’s 49.0 figure.  

BoJ stance seen remaining hawkish as inflation dynamics evolve

Analysts at Societe Generale argue that the latest inflation dynamics, including the mix of softer non-fresh food prices and firmer services costs, “continue to support the BoJ’s hawkish path,” reinforcing expectations that the central bank will maintain its tightening bias despite temporary downward pressure from renewed energy subsidies.

Technical Analysis: AUD/JPY keeps a constructive tone above the 100-day SMA

In the daily chart, AUD/JPY retains a bullish near-term bias as spot holds above the 100-day simple moving average (SMA) and the Bollinger middle band. Price action is pressing into the upper half of the Bollinger envelope, with the upper band acting as immediate overhead supply, while the 14-day Relative Strength Index at 63.27 stays in positive territory, hinting at sustained buying pressure rather than outright overbought conditions.

On the downside, initial demand is seen at the August 26 low of 113.66. The next contention level is located at the 100-day SMA at 113.25, followed by the the Bollinger middle band at 113.00. 

On the topside, any follow-though buying above the August 26 high of 114.96 would open the door for the Bollinger upper band at 115.20. The next hurdle to watch is the 116.00 psychological level.